Best Credit Cards for After Bankruptcy

Woman talking on the phone looking at her credit card
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When you filed bankruptcy, you probably you swore you'd never get in a credit bind again, regardless of whether your bankruptcy resulted from job loss, divorce, medical issues, or just overspending. In our culture, that’s a tall order, especially when you can finance everything from a set of towels to the new home you're buying them for through a catalog or online.

Or maybe you're the client who recognizes the value of credit and can't wait to start rebuilding theirs.

While it’s true that a bankruptcy can stay on your credit record for up to 10 years, what many people don’t realize is how quickly you'll be able to get back into the credit market after you receive your discharge. Some banks and card issuers are so anxious to lend to people emerging from bankruptcy that they actively market to them while they’re still in a bankruptcy case. It's not unusual for people to receive credit offers from credit card companies, local car dealerships, and stores that sell home furnishings.

But, you're not going to fall for every offer that comes your way, right? Some are worth investigating, but others are downright silly, their terms are so bad.

Why Creditors Are Eager to Lend to Bankruptcy Debtors

It seems counterintuitive that a bank or other lender would be willing, much less eager, to give credit to someone who just caused their competitors to lose hundreds or thousands of dollars. But there are sound and rational reasons for it.

  • The debtor just discharged thousands of dollars in debt, which frees up resources (i.e. income) that he can use to pay back new credit.
  • The debtor cannot file another bankruptcy for some time. For instance, if you received a discharge in a Chapter 7 case, you can’t receive another Chapter 7 discharge for eight years.
  • The creditor can charge a higher interest rate because the debtor is motivated.

Secured vs. Unsecured Credit Cards

Most of the credit card you’ll consider will be one of two types, secured or unsecured.

When you open up a secured credit card, the lender or issuer will require that you deposit a sum of money into a special savings account with the institution. The amount you deposit is usually equal to the lending limit the institution will allow on the account. The deposit acts as security for the lender. If you default in the future, the lender won’t be out any money because it only has to draw the money from the deposit account to pay down or pay off the credit balance.

Unless it's used to pay your balance, the money in the savings account still belongs to you. After a length of on-time payments, many companies will allow you to convert a secured card to an unsecured card with a higher credit limit.

A secured credit card often has a lower interest rate than any unsecured accounts you can qualify for right after bankruptcy.

This is the industry standard. It’s unsecured, meaning that you put up no security or collateral (i.e. the deposit). If you default on your payments, the credit card company has nothing to apply against your balance. Therefore, they'll come after you personally.

Things to be Look out for

In all cases, beware of two major issues:

Interest Rates: Right out of the gate, you could easily find yourself with an account with an interest rate of 20 percent or higher.

Fees: Card issuers will often charge annual fees for you to participate in their program, but many who provide credit after bankruptcy charge even more. Look for references not only to the annual fee but to

  • Set up fee.
  • Transaction fee.
  • Administrative fee.
  • Application fee.

It’s not unusual for a new account holder to be awarded an account with a credit limit of $300, but be slapped with $150 in fees the moment her application is accepted. For the account to be useful at all, she has to pay off those fees as soon as possible, but if she doesn’t, she’ll be paying even more in interest charges. Either way, the lender wins.

Offers to Consider

Here are some cards that receive generally favorable reviews. Each either requires no credit check or the lender will consider bad credit or a recent bankruptcy.

Secured Cards

  • Annual Fee: $25.
  • APR: 20.24 percent.
  • Limit/Deposit: $300 will get you a credit limit of $300.
  • Perks: Roadside assistance and cell phone damage protection.
  • Annual Fee: None.
  • APR: 24.99 percent.
  • Limit/Deposit: $49 to $200 depending on creditworthiness.
  • Perks: Security deposit can be less than credit limit, and you can pay it in installments; roadside assistance; car rental insurance.
  • Annual Fee: $44.
  • APR: 11.99 percent.
  • Limit/Deposit: 200 to $2,000.
  • Perks: Lower annual interest rate than most.

Unsecured Cards

  • Annual Fee: $0 to $75.
  • APR: 16.99 percent to 24.99 percent.
  • Limit: Initial limit will be $300 to $500 depending on creditworthiness.
  • Perks: 1 percent cash back on gas purchases. 
  • Annual Fee: $35 to $99.
  • APR: 23.90 percent.
  • Limit: $300.
  • Perks: Choose your custom card design.